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Do Business Borrowers Benefit from Bank Bailouts?: The Effects of TARP on Loan Contract Terms
Author(s) -
Berger Allen N.,
Makaew Tanakorn,
Roman Raluca A.
Publication year - 2018
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12222
Subject(s) - collateral , loan , moral hazard , maturity (psychological) , business , endogeneity , margin (machine learning) , asset (computer security) , financial system , monetary economics , finance , economics , incentive , psychology , developmental psychology , computer security , machine learning , computer science , microeconomics , econometrics
We investigate benefits to business borrowers from bank bailouts, specifically the Troubled Asset Relief Program (TARP). Applying difference‐in‐difference methodology to loan‐level data, we find more favorable borrower contract terms in five dimensions, spread, amount, maturity, collateral, and covenants, suggesting increased credit supply at the intensive margin by bailed‐out banks. Findings are robust to dealing with endogeneity and other issues. Riskier borrowers benefit more, consistent with moral hazard exploitation. Small and unlisted borrowers benefit less, suggesting fewer benefits for financially constrained firms. Benefits accrue to both relationship and nonrelationship borrowers. Results contribute to the research and policy debates on bank bailouts.